MDW Holdings Ltd v James Robert Norvill
| Jurisdiction | England & Wales |
| Judge | Lord Justice Newey,Lady Justice Asplin,Lady Justice Whipple |
| Judgment Date | 28 June 2022 |
| Neutral Citation | [2022] EWCA Civ 883 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA-2021-001824 |
[2022] EWCA Civ 883
Lord Justice Newey
Lady Justice Asplin
and
Lady Justice Whipple
Case No: CA-2021-001824
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN WALES
BUSINESS LIST (ChD)
His Honour Judge Keyser QC (sitting as a Judge of the High Court)
Royal Courts of Justice
Strand, London, WC2A 2LL
Hugh Sims QC and Jay Jagasia (instructed by Blake Morgan LLP) for the Defendants/Appellants
Andrew Ayres QC and Laurie Scher (instructed by Morgan LaRoche Solicitors) for the Claimant/Respondent
Hearing dates: 12 & 13 May 2022
Approved Judgment
This judgment was handed down by the Judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 10:00am on 28 June 2022.
This case raises issues as to how damages should be assessed for breach of warranty and deceit in the context of a share sale.
Basic facts
On 14 October 2015, the claimant, MDW Holdings Limited (“MDW”) bought the entire issued capital of G.D. Environmental Services Limited (“GDE”) from the defendants, James Norvill and his parents Jane and Stephen Norvill (together, “the Norvills”), for £3,584,224 pursuant to a share purchase agreement (“the SPA”) of that date. By clause 6.1, the Norvills acknowledged that MDW was entering into the agreement in reliance on the warranties set out in schedule 5, which, by clause 6.2, the Norvills warranted to be true and accurate on the date of the agreement except as disclosed by a disclosure letter. Schedule 5 included, among others, warranties that GDE had conducted its business in accordance with all applicable laws and regulations (paragraph 5.1); that GDE held the requisite consents and was not in breach of any of their terms and conditions (paragraphs 6.1 and 6.2); that no proceedings against GDE had been threatened and there were no circumstances likely to give rise to any such proceedings (paragraph 9.2); that GDE's accounts showed a true and fair view (paragraph 18.1); and that GDE had complied with environmental laws and permits and there were no facts or circumstances likely to lead to any breach of any such law, to the revocation, suspension, variation or non-renewal of such a permit or to any claims, investigations, prosecutions or other proceedings (paragraphs 29.2, 29.3 and 29.4).
GDE's business involved the collection, processing and disposal of waste. The company dealt with both “dry” and “wet” waste. The latter comprised cess waste; non-hazardous waste, such as gulley waste; hazardous waste, such as waste from garage forecourts or interceptor tanks; and leachate, which is the ammonia-rich liquid run-off from landfill sites.
The operation of GDE's business depended on consents and permits from environmental regulators. GDE's primary regulator was Natural Resources Wales (“NRW”) (before April 2013, the Environment Agency), which was the regulator of the waste industry. GDE was also subject to regulation by Dwr Cymru Welsh Water (“DCWW”) as the relevant sewerage undertaker. GDE held an environmental permit the relevant iteration of which was issued on 3 July 2012. It had also been granted a consent to discharge trade effluent into DCWW's public sewers subject to conditions set out in a variation dated 5 December 2012 (“the 2012 Consent”). Misleading either NRW or DCWW could constitute a criminal offence.
In his careful and detailed judgment, His Honour Judge Keyser QC, sitting as a Judge of the High Court, identified occasions on which the regulators had been supplied with false information by GDE prior to the date of the SPA. In paragraph 45 of his judgment, Judge Keyser QC (“the Judge”) concluded that there had been “a culture of lying to the regulators when it was convenient to do so” in which Mr James Norvill had been complicit.
The Judge also found there to have been repeated and persistent breaches of the 2012 Consent in relation to the discharge of leachates. The Judge said in paragraph 147 of his judgment:
“The truth is simply that GDE found itself unable to contain the levels of contaminants within the permitted levels and on occasion resorted to falsification in order to conceal this from NRW. What is also true is that GDE was unwilling to take steps that might have enabled it to comply with the 2012 Consent but at a commercial cost.”
The Judge found, too, that GDE had improperly discharged cess waste directly into a public sewer via an inspection chamber known as “the magic hole”. He considered the extent of this practice to have been exaggerated by MDW, however. He arrived at these conclusions in paragraph 171 of his judgment:
“1) MDW's case on this issue has been considerably exaggerated. The practice of discharge of cess waste down the magic hole was not a daily occurrence and tankers did not queue up, as has been alleged.
2) It is improbable that there was more than occasional discharge of cess waste down the magic hole after 2012 ….
3) There were probably occasional discharges in 2013; these would have taken place if a tanker had been unable to discharge at a DCWW facility during working hours and were required for an early start the following day. Such discharges would have been in the evening or at weekends. I find on the balance of probabilities that the discharge of cess waste into the magic hole took place on occasion after October 2013 and in early 2014; one such occasional discharge may have prompted the investigation in February 2014. However, these occasions will have been very few. Any discharges while Mr Doe was still employed (that is, up to April 2014) were probably authorised; if any took place after that date (they may have done, but I am unable to find that they did) they were probably unauthorised by management personnel and unknown to them.
4) I find that the practice had no significant impact on GDE's financial performance or accounts in the two years immediately preceding the SPA.”
There was a further finding that hard solids had occasionally been dug out of the very bottom of separator tanks and disposed of as dry waste. The Judge said this on the subject in paragraph 192(1) of his judgment:
“This was an improper practice, because the hard solids ought to have been disposed of as hazardous waste. James [Norvill] … knew that it was improper. However, this practice was rare—it involved only the hard deposits that were not sucked up with the sludge, and the practice of manually digging them out was recognised as unsafe for employees and was carried out infrequently. The impact of the practice on GDE's financial performance cannot be quantified accurately but will have been minimal.”
In the light of his factual findings, the Judge held that the Norvills had breached each of the warranties I mentioned in paragraph 2 above: see paragraphs 212–214, 216–221 and 243 of the judgment. The Judge also concluded that the Norvills had been responsible for untrue representations on which MDW had relied. The representations in question were made in “Due Diligence Index and Responses” provided to MDW and were to the effect that DCWW had agreed that consent levels were too low, that there was nothing to disclose with respect to breaches of discharge consents and that there was nothing adverse to disclose as regards DCWW sampling results: see paragraphs 251–252 of the judgment. The Judge found that Mr James Norvill knew that the relevant representations were being made, that he knew too that the representations in respect of breaches and DCWW sampling results were false and that, having left matters to Mr James Norvill, his parents also bore responsibility for his fraud, though themselves innocent of it: see paragraphs 260–262 of the judgment.
Overall, the Judge arrived at the following conclusions on liability:
“277. The defendants are liable for breach of warranty in respect of:
1) The persistent and continuing breaches of the 2012 Consent concerning the discharge of leachate;
2) The false information provided to DCWW;
3) The disposal of hard solids from the tank bottom waste on the Dry Side;
4) The disposal of cess waste down the magic hole;
5) The failure to disclose the misfeasances in respect of hard solids as pollution incidents;
6) The failure to disclose the misfeasances in respect of leachate, hard solids, cess waste, and provision of false information to DCWW as non-compliances with regulatory consents and permits;
7) The threat of prosecution by reason of the breaches of the 2012 Consent;
8) The likelihood of revocation of the 2012 Consent by reason of those breaches.
278. However, breaches of warranty in respect of cess waste and tank bottom waste were of no demonstrable significance, because it has not been proved that they had any causal relation to any loss and damage. Therefore, in short, the relevant breaches of covenant concerned only the discharge of leachate: the persistent discharge in breach of the 2012 Consent, the threat of prosecution for that reason, the likelihood that the breaches would result in revocation of the 2012 Consent, and the provision of false information to DCWW.
279. The actionable misrepresentations were those in the Due Diligence Index and Responses; there were no other actionable misrepresentations. They cover the same ground as the breaches of warranty. The misrepresentations constituted deceit on the part of James. Jane and Stephen are liable for the same misrepresentations, and to the same extent, on the basis of section 2(1) of the Misrepresentation Act 1967. They would also be liable in deceit because, although innocent themselves, they...
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